TV merger will have to play ball

While he has been amicable in accommodating Foxtel’s efforts to bed down its bid for
Austar
, competition boss Rod Sims warns he will not be a pushover when it comes to the crucial issue of exclusive sporting rights.

In phone conversations last week,
Sims
and Foxtel boss
Richard Freudenstein
agreed to sort out their differences over the $1.9 billion pay television takeover by the Easter break.

It was a defining moment in Foxtel’s frustrating year-long effort to buy regional operator Austar and highlights the different approach the Australian Competition and Consumer Commission is taking towards takeovers under Sims’s leadership.

The timing was crucial for Freudenstein, who has been working around the clock since he joined Foxtel in November to clear competition hurdles before Friday’s court ruling on the deal.

Foxtel and its powerful shareholders are relieved by what they see as a pragmatic and sensible approach to the impasse by Sims.

The corporate world hopes it signals a more friendly manner in the way the ACCC deals with takeovers and confirms the regulator’s “evidence-based" approach to takeovers.

The Federal Court’s rejection last year of the ACCC’s hypothetical arguments in relation to Metcash’s bid to acquire the Franklins supermarket chain had a huge bearing on the commission’s approach to Foxtel.

That ruling was a blessing in disguise for Freudenstein, who succeeded
Kim Williams
at Foxtel just over two months later.

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The last-minute undertakings nutted out last week and announced yesterday are relatively painless concessions made by Foxtel, largely aimed at addressing concerns that 50 per cent shareholder Telstra will not have an unfair advantage over rivals.

Foxtel’s biggest threat at the moment is free-to-air TV rather than internet protocol television, and the undertakings will not hurt its ability to offer programs exclusively against the likes of networks
Seven
,
Ten
and Nine.

More importantly, Foxtel has been able to hang on to its premium live sport exclusivity, the jewel in the crown for pay TV operators.

The real game-changer for Foxtel will be how the ACCC and the federal government tackle the sensitive issue of exclusive sporting broadcast rights.

Sports rights are the only area in which there is real exclusivity left, with movies widely available on IPTV, and the main drawcard for subscribers in the first place.

Sims gave an interesting glimpse yesterday into how the ACCC may tackle the thorny issue of
Telstra
’s dominant position in sports broadcasting rights.

Echoing the howls of protest from Telstra’s competitors, Sims acknowledges there are issues with the fact that Telstra owns half of Foxtel and Fox Sports has the main sports rights sewn up.

He says it would be a difficult case to make, but if exclusive access to content were found to be hurting competition, a judgment could be made.

Sims also points out that there are avenues for the government to tackle the issue by looking at regulatory solutions to make sporting content non-exclusive.

The important thing is that yesterday’s Foxtel ruling does not close the door on any of these options.

Sims, who likes watching sport himself, has done the right thing in not keeping the Foxtel-Austar deal hostage to the wider issue of exclusive sporting rights.

Foxtel and Austar already had exclusive access to Fox Sports in their respective territories anyway, and trying to resolve that issue would unnecessarily derail the deal.

Former ACCC chairman
Graeme Samuel
, who was replaced by Sims last year, repeatedly warned of the threats to competition from allowing companies to lock up exclusive sporting rights after the national broadband network (NBN) is built.

This will be a crucial focus for Sims, who needs to ensure there is something left of value for any new entrants in the market to broadcast.

Foxtel argues that sport is one of the most competitive environments in which it does business as free-to-air stations can bid for any sport. Tough anti-siphoning laws also seek to split the distribution of AFL and NRL matches between pay TV and free-to-air stations.

A five-year, $1.25 billion media rights deal was struck by the Australian Football League with
Kerry Stokes
’s
Seven West Media
, Telstra, Foxtel, and Austar last April, with lucrative rights for NRL, cricket and other sports to be contested in the future.

Sims has tried to install some preliminary safeguards to protect consumers and Telstra’s rivals in yesterday’s ruling.

He has tried to give Telstra’s competitors everything they wanted, except tackling the sporting rights issue.

The competitors, of course, are screaming blue murder, warning that Foxtel will have 90 per cent of the market locked up and customers will end up with less choice and higher prices.

Optus called it a “pre-NBN land grab" that would allow Telstra to lock away customers by offering attractive fixed line, broadband and IPTV packages.

Sims faces an enormous challenge in the face of technology that is changing so fast it is impossible to predict how markets such as pay-TV will look when the current undertakings expire in eight years.

Pay TV is only one industry struggling to keep pace with changing technology. Newspapers are also in the frontline, along with retailers.

In making his ruling yesterday, Sims had to try to avoid hypothesising about the impact new technology could have while providing ways to encourage new rivals into the market.

The rollout of the NBN is the other game-changer for pay TV, not forgetting there is no certainty that political football will even be completed.

IPTV is a technology that is likely to flourish under the NBN.

Foxtel made concessions last month by agreeing to open up access to a range of content, including Disney, Sky News and ESPN channels, as well as movies on demand for competitors broadcasting on IPTV.

These concessions were extended just before Easter to include the popular Nickelodeon and National Geographic channels in the non-exclusive list and extending undertakings to tablet devices such as iPads.

Foxtel can still buy mobile rights exclusively.

Foxtel’s patience has paid off, although it did not have many options but to hang in there.

With subscriber numbers flatlining as the number of free-to-air channels triple and consumers are turning to the internet to watch TV (legally and illegally), consolidation was necessary for growth.

The idea has been floated several times over the past decade and the strong Australian dollar made it a more attractive deal for Austar’s majority shareholder, US billionaire
John Malone
’s Liberty Global.

Freudenstein was tight-lipped yesterday over what he is planning after the merger, but said “a whole bunch" of stuff is in the pipeline.

Foxtel and Austar customers should not get overexcited about any immediate or dramatic change to their product.

Foxtel plans to develop a single set-top box for a national audience in the future. In the short-term, it means Austar subscribers will be able to watch London Olympics coverage.

Some argue there is also a question mark over the future ownership of Foxtel.

Keen to get his hands on
Echo Entertainment
,
James Packer
is seen as a likely seller of his stake in
Consolidated Media Holdings
, which owns 25 per cent of Foxtel and half of Fox Sports (News Ltd owns the other half).

If Telstra decided to raise its stake in Foxtel, that would be a whole new issue.

Chief executives are staying in the top job for a shorter time than ever before and it is not a healthy trend for shareholders.

An interesting piece of research by Goldman Sachs shows that the turn­over rate of chief executives at Australia’s top-100 listed companies is escalating. Bosses average 3.9 years in the top job today, compared with 4.6 years in 2007.

Like politics, this short-term approach can have negative ramifications.